Australia and Canada
QUESTION:
My wife and I are thinking of taking up residence in
Australia. We are both retired and receiving Canadian
pensions and would like to know if these pensions will
be
subject to a withholding tax if we no longer reside
permanently in Canada?
Thank you,
yours sincerely,
===================
david ingram replies:
I wish that they were all this easy. Article XVIII of
the Australia - Canada Income Tax Convention (May 21,
1980) and its Amending Protocol (signed on Jan 23,
2002) reads as follows:
Article 18
Pensions and Annuities
1. Pensions and annuities arising in a Contracting
State for the benefit of and paid to a resident of the
other Contracting State may be taxed in that other
State.
2. Pensions and annuities arising in a Contracting
State in a year of income or taxation year may be taxed
in that State and according to the law of that State
but the tax so charged shall not exceed the lesser of:
a) 15 per cent of the pension or annuity received in
the year; and
b) the tax that would be payable in respect of the
pension or annuity received in the year if the
recipient were a resident of the Contracting State in
which the pension or annuity arises.
However, the limitation on the tax that may be charged
in the Contracting State in which pensions and
annuities arise does not apply to payments of any kind
under an income-averaging annuity contract.
3. Any alimony or other maintenance payment arising in
a Contracting State and paid to a resident of the other
Contracting State, shall be taxable only in the
first-mentioned State.
This means that 15% will be deducted from your pensions
in Canada and that is the most tax you will pay to
Canada (If you were in the US, no tax would be deducted
on CPP and OAS). If your pensions were really low and
you do a return under Section 217 of the Canadian
Income Tax Act and it works out to less than 15% tax
after taking basic exemption amounts and old age
amounts and pension amounts, than you would pay the
lesser amount to Canada.
You would then convert the pensions to Australian
Dollars and report the GROSS pensions on your
Australian return. You would then claim a foreign tax
credit in Australia for the money paid to Canada. You
should get credit for every cent paid to Canada.
Of course, when you leave Canada you must fill out
forms T1161, T1243 and likely T1244. Failure to file
form T1161 can mean a penalty of $2500 each. ($25.00 a
day for 100 days - 4 days late would only be $100
fine)
You can find the forms and look them over at:
http://www.ccra-adrc.gc.ca/E/pbg/tf/t1161/t1161-03e.pdf
This is the form to calculate the tax on the T1161
http://www.ccra-adrc.gc.ca/E/pbg/tf/t1243/t1243-03b.pdf
This is the form that defers tax on the deemed
disposition
http://www.ccra-adrc.gc.ca/E/pbg/tf/t1244/t1244-03b.pdf
I would likely charge you $700 to $1,400 Canadian for
the departure tax returns, slightly more if you wanted
the First Australian return prepared as well and it is
a good idea to have them all done by the same person.
================
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